AFL-CIO Says CEO Pay Packages Played Role In Mortgage Crisis
Labor leaders have said that runaway executive pay is partly to blame for the nation's mortgage mess. Now they’re calling for Congress to adopt a "say on pay" bill, which would let shareholders weigh in on CEO compensation.
Chief executives at Countrywide Financial and Washington Mutual were paid "obscene amounts" even when their company's performance faltered as subprime borrowers defaulted on home mortgage loans, according to AFL-CIO Secretary-Treasurer Richard Trumka.
During a press briefing last week, Trumka claimed the bad loans devalued mortgage-backed securities tied to them, leading to large write-downs in assets at a number of financial firms.
Countrywide Chief Executive Angelo Mozilo, Washington Mutual CEO Kerry Killinger, former Bear Stearns CEO James Cayne, and former Citigroup CEO Charles Prince were among those rewarded lavishly for betting on risky loans, according to labor officials. Mozilo and Cayne are also chairmen.
"When the house of cards fell, they didn't pay for it, we did," said Trumka.
Executive Paywatch, an online database that the AFL-CIO debuted in 1997, includes a new feature this year allowing users to compare CEO pay to corporate financial performance over periods of one, three and five years.
Union officials say results demonstrate the gap between lofty pay and slumping performance. The executive compensation data includes results reported to the SEC as well as the AFL-CIO's own calculations. They include stock-based compensation when granted, rather than when received - an approach many union officials think is superior to the SEC's tally.
Washington can help, too, according to AFL-CIO officials. Dow Jones Newswires reports they are calling for a moratorium on home foreclosures and changes that would require subprime mortgages with short-term "teaser" rates to be converted to 30-year loans carrying the original, low teaser rate.
On the pay front, labor union officials said they hope Senate lawmakers will act this year on legislation requiring public companies to give shareholders an advisory vote on CEO compensation. A "say on pay" bill has cleared the House of Representatives but the Senate is yet to take up the matter.
– By Ed Coury, senior editor and Midwest bureau chief for the Wall Street Journal Radio Network, Dow Jones & Co., and a reporter for WWJ Newsradio 950.
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